Retirement Scenario #1: The School Teachers

This California couple's investing plan is almost airtight -- if only the economy will play along.

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We've put to rest the false notion that, "Those who can't do, teach." But we do know this: Those who teach, retire -- and well.

Take the case of two teachers, a married couple, who went to see retirement planner James Ellis when they were ready to exit the teaching business. Ellis, who runs a boutique firm, Retirement Planning Associates, in Van Nuys, California, says the couple mapped out their post-career lives perfectly. "He, the husband, is not an arrogant person, but he can be a little bit smug about this," says Ellis.

Like all public school teachers, the couple earned low salaries when they started out. Some 10 to 15 years into their careers, they were making about $50,000 each. They bought a modest house in the Southern California desert and eventually paid it off in full. They had three children, now adults with careers and children of their own. "Whenever they didn't feel cash poor," according to Ellis, the teachers paid into 403(b) plans, registered retirement savings accounts for teachers and school organizers. They stayed in the plans for more than 30 years each, wisely maximizing their annual contributions during the last decade of enrollment.

By the time the husband had retired, he had taken on a part-time college job in addition to his pubic school work and was earning $75,000 per year. His wife retired with a salary of $65,000. Their savings were substantial at $200,000 (his) and $150,000 (hers).Pension Pay-off

Teachers everywhere are envied for their generous pension plans. Put in your time facing the tough, often distracted, and always authority-challenging audience that kids can be, and you'll be rewarded with nearly worry-free senior years. In this case, both of Ellis' clients were eligible for pensions immediately after dismissing their last classes six years ago, when he was 60 and she was 55. Under the California State Teachers' Retirement System (CalSTRS), his pension was worth 70% of his former salary, while hers equaled about 56% of what she had last earned.

With all of their daily expenses covered by pension checks, the couple had no need to dip into their savings funds, which they placed in Ellis' care. He rolled the savings into traditional IRA accounts and began investing. For the first four years, says Ellis, everything was going "great guns." During the first five years that the money was under his management, for example, that $200,000 the husband had saved grew to surpass $400,000.

But that was before 2007 and the onset of the economic downturn. When the bottom started to fall out of the market, the former teachers watched their nest eggs shrink, returning to the same size they were in 2003. Like everyone else, they got the jitters. "Clients trust you the least when you're losing the most," Ellis says. "In fact, you're sharpest when you're losing. You forget about everything else in your life. You say to yourself, 'Okay, this isn't shooting fish in a barrel anymore.' "

Unfortunately, most clients also fear strategies that work against prevailing trends, he adds, even when taking a contrary approach is best. "You know how Buffett always says, 'Be careful when others are greedy, be greedy when others are careful?' Well, clients always think the opposite way."

Ellis did his best to move the couple's funds into safer investments, taking special advantage of corporate bonds that were trading at a substantial discount. Still, there were few safe havens to be found. By the time the dust settled after the 2007-2008 market panic, both IRAs had lost 20% of their value.

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